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Peso rebounds on rate hike bets, oil

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THE PESO rebounded versus the dollar on Thursday, returning to the P54 level, on lower global oil prices and as the incoming Bangko Sentral ng Pilipinas (BSP) chief said they may consider a more aggressive rate hike at their August meeting to temper rising inflation.

The local unit closed at P54.975 per dollar on Thursday, rising by 8.5 centavos from its P55.06 finish on Wednesday, Bankers Association of the Philippines data showed.

The peso opened Wednesday’s session at P55.06 versus the dollar. Its weakest showing for the day was at P55.14, the lowest in over 16 years or since its P55.26 close on Oct. 25, 2005, while its intraday best was at P54.80 against the greenback.

Dollars exchanged inched down to $1.24 billion on Thursday from $1.27 billion on Wednesday.

“The peso exchange rate was stronger today … after the recent decline in global crude oil prices to among one-month lows,” Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message.

“The peso was also stronger after the latest signals of the possibility of a bigger local policy rate hike if necessary and depending on economic data,” Mr. Ricafort added.

Oil prices, which have soared in 2022 along with most commodity prices, edged lower on Thursday amid concerns about an unseasonable slowdown in US gasoline demand, Reuters reported.

Brent slipped 0.8% to $115.33 a barrel, while US crude declined 0.47% to $109.27.

Meanwhile, on Wednesday, incoming BSP Governor Felipe M. Medalla told reporters that the central bank may consider a more aggressive rate hike at its Aug. 18 meeting if inflation keeps its upward momentum, but noted the decision will remain data dependent.

Early in June, ahead of the US Federal Reserve’s decision to increase its own rates by 75 basis points (bps) at its own meeting that month, Mr. Medalla said he is not keen on raising borrowing costs by more than 25 bps per meeting.

The BSP last week raised benchmark interest rates by 25 basis points for a second straight meeting to cool rising prices. At that meeting, it raised its average inflation forecast for this year to 5% from 4.6% previously, well above its 2-4% target.

The central bank sees headline inflation picking up further and settling within the 5.7-6.5% range in June. Inflation stood at 5.4% in May, the fastest in three and a half years.

Nomura Holdings Head of Global FX Strategy Craig Chan on Thursday said the BSP’s dovish stance is putting pressure on the peso.

“We’re still going to be seeing the real policy rate becoming more negative… particularly in this current backdrop where there are pressures coming out, namely from the US Fed policy charge,” Mr. Chan said in a webinar.

“Our view is that we are going to be likely breaking new record highs in dollar-peso in the coming one to two months. It’s likely we see P56.50,” he added.

Meanwhile, a trader said in an e-mail that the peso appreciated ahead of likely softer US personal consumption expenditures inflation in May. The PCE price index is the Fed’s preferred inflation gauge.

For Friday, the trader said the peso might appreciate further due to potentially weaker US manufacturing purchasing managers’ index data.

The trader expects the local unit to move within P54.80 to P55 per dollar on Friday, while Mr. Ricafort gave a forecast range of P54.80 to P55.05. — K.B. Ta-asan with Reuters